The Unholy Trinity: Worshiping False Profits

At a financial forum: ZeroXZero,

"The biggest bubble the FOREIGN government has fostered is in real estate, and if that puppy starts to unwind — and how can it not, if FOREIGN doesn't have enough financial firepower to hold off a stock market debacle — they might commence the Real Estate Debacle, which will truly become the Mother of all Deleveraging Disasters, and BLANKS is exposed for what it really is — a country that decided it could SUSTAIN a sophisticated economy without building a solid economic foundation by encouraging FALSE PROFITS.  My only question is the extent to which this spills over onto the more developed economies."

Carefully read the edits I made to your statement above. I leave it to you to figure out who BLANKS and FOREIGN are, and what FALSE PROFITS are as the answer to your question lies herein. I will also leave you with two things inviolate and sacrosanct.

No solid economic foundation means a house of cards and that is what BLANKS has.  Through corporate policy (outsourcing to labor at the margin, tax and ecological regulation avoidance, trade deficits, dearth of capex) which encourages FALSE PROFITS, BLANKS has outsourced its solid economic foundation and all the good paying jobs that went with it, to FOREIGN labor at the margin.

  

Rule #1: This is the Nattering Naybob's law of bubbles, which is based upon laws of Physics. In serial bubbles, as in any bubble, while the bubble is inflating or inflated, all quantum fluctuations are magnified.  Refer here.

Therefore, everything on the surface of the bubble, inputs, outputs and prices are inflated and distorted, making real price discovery, impossible. Notice we did not put labor or wages which has been muted and lowered by corporate policy as mentioned above (outsourcing, union busting, lower benefits, pay and loyalty).

That overinflated (appears much bigger than it really is) FOREIGN is now good for one thing only, exporting overcapacity of labor, inputs and outputs.  Aside from what is contrived and manipulated to benefit speculators, brokers and insiders, real scarcity does not exist. As that is an urban myth and fairy tale for the consumption of naive children and the ignorant.

Through government policy (corrupt, irresponsible, deficit budget, austerity measures) at all levels,  and in the name of fiscal solvency, which encourages FALSE PROFITS, government spending on much needed animal spirits, education, health and social welfare is brought to a standstill through divisive and polarizing legislative gridlock by design.

Through monetary policy (creation of serial bubbles, artificial suppression of rates, disincentive to invest in economically beneficial activity) which encourages FALSE PROFITS, since real rates are actually negative the BLANKS have put all their money into financialism or non economic activity  (asset speculation, buybacks, dividends, real estate flipping).  This is self reinforcing as it misallocates capital, drives rates lower and worse yet, velocity or monetary flows to near nothing. 

Rule #2: This is Salmo Trutta's law of monetary flows:  "It is axiomatic (true for over 100 years), given nominal rigidity (limited upward and downward price and wage flexibility), unless monetary flows (our means-of-payment money times its transactions rate-of-turnover), exceed the rate-of-change, roc, in real-output by 2-3 percentage points (at least the roc of "asked prices"), output can't be sold, production will be cut back, incomes will decline, and layoffs will ensue."

Without true price discovery from #1, how can #2 accurately be predicted, much less happen?  The above is what has happened and given no real or durable economic base to fall back upon, all the developed BLANKS are now screwed. They can neither produce nor consume at a rate to sustain the falsity of the global serial asset bubbles that their trinity of policies (corporate, government, monetary) have created. Resulting in the spill over going the other way from DM to EM. 

In a world awash in overcapacity, you can debauch, output and cut prices as much as you like.  When there is not enough buyers with enough money, then liquidation into the face of a dearth in demand is what shall occur. And that is the only form of deflation we may be facing. 

The seeming unholy trinity of policy, corporate, government and monetary must stop worshiping false profits and encourage the BLANKS to rebuild their economic foundations to be durable, with real jobs making real things, not McJobs servicing discretionary spending.  Until this occurs, there shall be no meaningful recovery and all else shall be illusory and plaugued by failure.